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spk02: Hello, ladies and gentlemen. Thank you for standing by for KE's third quarter 2020 earnings conference call. At this time, all participants are in a listen-only mode. This conference call is being recorded. And I will now turn the call over to your host, Mr. Matthew Chow. I am the director of the company. Please go ahead, Matthew.
spk00: Thank you, operator. Good evening and good morning, everyone. Welcome to Kerr Holdings Inc., our biggest third quarter 2020 earnings conference call. The company's financial and operating results were published in the press release earlier today and are posted on the company's IR website, www.investors.ke.com. On today's call, we have Mr. Stanley Yongdong Peng, our co-founder and chief executive officer, and Mr. Cao Xu, our chief financial officer. Mr. Peng will provide an overview of our strategy and business development, and Mr. Xu will provide additional details on the company's financial results and discuss financial outlook. Before we continue, I refer you to our state property statement in our earnings past release, which applies to this call, as we will make forward looking statements. Please also note that Baker's earnings press release and this conference call include discussions of an audit gap financial information, as well as an audit non-gap financial measures. Please refer to Baker's press release, which contains a reconciliation of the audit non-gap measures to comparable gap measures. Lastly, unlike otherwise stated, all figures mentioned during this conference call are in your name. With that, I will now send the call over to our CEO, Mr. Stanley Peng. Please go ahead, sir.
spk06: Thanks, Matthew. Hello, everyone, and thank you for joining us today, our first earning course as a public company. We appreciate having the opportunity to be directly with all of you and to share our perspective on how we are doing in continuously fulfilling our mission of transforming housing transactions and services industry in China. We always uphold the strong conviction of doing the right thing, even if it's difficult, so that we can achieve long-term success. We are committed to reinventing the industry and strive to take good care of housing customers and service providers, as well as other platform participants in all aspects. While we believe technology and our value proposition are the two pillars underlying our advancement in fulfilling our mission, Through continuous development of our infrastructure, including our operating system, the agent-cooperating network, or ACN, as well as the intensive community-centric touchpoints and data-driven products and solutions, we further promote standardization and digitalization across data transaction process and service quality in our industry. As a result, we deliver a robust performance both operationally and financially in the third quarter. We achieved total revenue of RMB20.5 billion. This represents the increase of 17.9% year-over-year, driven by solid growth transaction volume of GTV growth of 87.2% to RMB1.05 trillion. along with healthy tech rates on our platform. Meanwhile, in the third quarter, our adjusted net income reached 1,858 million RMB, an increase of 210.6% year-over-year. Next, let me give you more color in terms of our recent business updates. Firstly, in the third quarter, we continue to enhance the infrastructure on our platform For ACN, through rules and protocols, clearly defined rules and a commission allocation mechanism, social trust built upon big score. ACN enables information and resource sharing, promotes trust between participants, fosters cross-brand and cross-store collaborations, and created a professional network for service providers to get connected and engage on the platform. At the end of the third quarter, more than 44,800 stores were connected on the BigQuery platform with 477,000 agents. Our expansion scale also comes with enhanced quality. Over 70% of total existing home transactions were completed through cross-store collaborations. while Canadian stores contributed nearly 80% of the existing home listings as of September 13th. We vigorously promoted store scoring system on the platform, which helps build up trust between stores and agents, improve the operational efficiency and healthiness of our ACN. By the end of the third quarter, 25.7% of stores on our platform achieved a higher a highest A rating. We are also pleased to have more agents with higher education backgrounds joining the platform. While we expanded our community-centric network, we also continue to increase our online presence through both organic growth and marketing activities. Our average monthly active users of apps and WeChat mini program increased by 82.1% year-over-year to $47.9 million in the third quarter, leading to more transactions generated from online leads. Our housing dictionary covered 233 million homes, which is over 60% of all the housing stock in China. By the end of the third quarter, our VR database accumulated 3D data on 7 million homes, compared with 5 million by the end of the premier quarter. Our continuous digitalization of the industry and data collection is further deepening our moat. Next, moving to our existing home transaction service business. According to Baker Research Institute, China's overall existing home transaction market grew by 22.6% year-over-year. Much of this growth was actually attributable to the release of pent-up demand, as well as low base in the second half of 2019. On our platform, the total GTV of existing home transactions reached $517.6 billion, RMB for the third quarter, representing an increase of 71.8% year-over-year. In the third quarter, we launched several initiatives to optimize customer experience and enhance transaction efficiency. For example, we scaled up our online mortgage processing services, which makes the post-sales contract transaction process more intuitive and efficient. Through our collaboration with leading commercial banks and our online mortgage service applications, we moved the entire mortgage process online. We helped customers reduce the time between signing of sales contracts and mortgage interviews by 19%. We note that the COVID-19 pandemic substantially accelerated the adoption of such services since people tried to minimize face-to-face interaction. In the third quarter, almost 30% of commercial mortgage loans facilitated by us were processed through our online mortgage processing services. By the end of September, the online mortgage processing service on Baker's platform covered 45 cities and more than 1,000 bank branches from 66 collaborating banks nationwide. Another example was the premium package for home sellers. As the supply and demand in the housing market becomes more balanced, to meet the rising demand for quality services and urgent home sales, as well as attract more quality home listings and facilitate more efficient matching. In the third quarter, premium package for home sellers expanded on the platform. Under these services, guarantee of property sales within a certain time period, as well as medical service commitments and value-added services offer to home sellers. We believe those premium services demonstrated our ability to leverage AI and big data to drive intelligence matching and sales. By the end of the third quarter, more than 20,000 listings on the premium package for home sellers agreements were signed up in the 33 cities. Certainly, turn to our new home transaction services. In the third quarter, according to the National Bureau of Statistics, China's overall new home sales market grew by 21.4% year-over-year. On the supply side, developers enhanced their sales effort, including partnership with brokerage services in order to accelerate sales through and cash cycle. We grew our GTV of new home transaction services by 100%. and 5.7% to RMB 420.7 billion in the third quarter of 2020. Our account receivable collection period also improved in the third quarter. During the third quarter, we also adopted a series of measures to further improve customer experience and solidify our core competencies. We partnered with developers and pioneered the three-day free return policy to new home customers to ensure adequate levels of customer protection. The new home transaction services industry has lagged fine behind other consumer verticals which have widely applied three-day free return policies for long. The three-day free return policy on our platform has over 3,000 projects cumulatively by the end of September. In more than 17 cities, uh 70 cities meanwhile 42 developers out of our top 50 developers in china have partnered with us on the commitments meanwhile we have also upgraded a new home risk control mechanism supported by our database of our scientific transaction and user data we are able to implement precautions control measures to each developers each project and even to cash transactions Our customers are better prepared while we achieve improved AI turnover level and are confident to offer timeless commission advances to our agents. Firstly, as to our continuous efforts on our standardization and digitalization, I would like to give you an update on our technical innovation. During the third quarter, we further upgrade our AI assistant Xiaobei version 2 to standardized agent service process by supporting the entire workflow. The collected data through Xiaobei will feed back to agent training and product interaction Meanwhile, we have made solid progress in VR by widely adopting VR Lite, a lighter-version application with light-weighted, cost-reduced VR cameras, capitalized for the rental market in the third quarter. In the past September, our VR property showings accounted for over 40% of total online and offline agent-guided tours. In addition, we continue to attract top talent to join us. Dr. Jie Pingye, professor at the University of Michigan, a veteran and top expert in the field of machine learning and data monitoring and analysis, was recently appointed as our chief scientist and head of AI technical centers to lead our AI-related research and applications. Lastly, to summarize, as people spend more time at home this year, we are seeing people become more focused on better living conditions as well as pursuing quality services and personalized experience when they navigate and proceed housing transactions. The recent trend resonates well with our long-term dedication and our mission of an admirable service joined for living. lead to the phenomenal growth of our platform today. We believe those recent trends represent the future as we further ask you our strategic initiatives centering on our conviction of taking care of the consumer and supporting the service providers. We remain excited about our growth path and our confidence that we can create sustainable value for our housing customers service providers and our platform participants over the long run. With that, I would like to turn the call over to our CFO, Pao Xu, for a closer review of our financials. Thank you.
spk00: Thank you, Stanley. Thank you, Arvind, for joining us. I would like to give a brief overview for the third quarter of 2020 financial results. We achieved robust operational and financial growth in the third quarter. Our net revenue increased by 70.9% year-over-year to RMB 20.5 billion, exceeding the high industry consensus. The rapid growth of net revenue was drained by the solid GDP growth of 87.2% year-over-year to RMB 1.05 trillion, along with increased productivity and the continuous input of service quality on our platform. In particular, our revenue from within-home transaction services increased by 46.2% year-over-year to RMB 8.8 billion in Q3. Mainly due to a 71.8% year-over-year increase in GDP of using home transactions to RMB 576.1 billion in Q3. Our revenue from new home transaction services increased by 95% year-over-year to RMB 11.1 billion in Q3. primarily due to a 105.7% year-over-year increase in GDP of new home transactions to RMB 420.7 billion in Q3. Our revenue from emerging and after services increased by 115.6% year-over-year to RMB 625 million in Q3. The increase was primarily due to the increase of the penetration level of financial services around our housing transaction services. Cost of revenue increased by 78.0% year-over-year to under $16.2 billion in Q3. Gross profit increased by 49.1% year-over-year to under $4.4 billion in Q3. Gross margin was 21.3% compared to 24.4% in the same period last year. The decrease in gross margin was mainly due to the increase of share-based compensation expenses. and the new home construction was delayed by Canadian stores and agents and other sales channels. Operating expenses increased by 75.8% year-over-year to RMB 4.5 billion in 2003. General and administrative expenses was RMB 2.65 billion, compared to RMB 1.37 billion in the same period last year. mainly due to the increase of share-based compensation expenses and the number of supporting staff in the city level. Sales and marketing expenses were RMB 1.03 billion, compared to RMB 737 million in the same period last year, mainly due to the increase of brand advertising and promotional marketing activities and the share-based compensation expenses. Research and development expenses were RMB 789 million compared to RMB 436 million in the same period last year, mainly due to the increase of share-based compensation expenses. Last, from operations to RMB 81 million in Q3, compared to the income from operations of RMB 400 million in the same period last year, Operating margins were netting 0.4% in Q3 compared to 3.3% in the same period last year. This is primarily due to the increase of share-based compensation expenses. Excluding non-GAAP items, our adjusted income from operations increased by 185.1% year-over-year to RMB 1.74 billion in Q3. Adjusted operating margins increased to 8.5% in Q3 from 5.1% in the same period last year. Adjusted EBITDA increased by 122.3% year-over-year to RMB 2.25 billion in Q3. Non-income was RMB 75 million in Q3, compared to RMB 384 million in the same period last year, excluding non-gap items. Our adjusted net income increased by 210.6% year-over-year to RMB 1.86 billion in Q3. Net loss attributable to Kerr Holding Inc., other shareholders, was RMB 271 million in Q3, compared to RMB 77 million in the same period last year. Adjusted net income attributable to Kerr Holding Inc., increased by 212.3% year-over-year to RMB 1.86 billion in Q3. For the third quarter of 2020, diluted the net loss for ADIs attributable to Kerr-Hogan Inc. ordinary shareholders was RMB 0.33, compared to RMB 0.17 in the same period last year. A drastic dilution in net income for a debt attributable to clearholding in ordinary shareholders increased by 762.5% to RMB 1.38 from RMB 0.16 in the same period last year. As of September 20, the combined balance of cash, cash equivalent, restricted cash, and shorting investment amount to RMB 59.2%. Looking ahead to our first quarter of 2020, we expect our net revenue to be between RMB 19.2 billion and RMB 28.2 billion. This is representing the increase of approximately 33.5% to 40.5% year-over-year. This fits our loop with our company's current and preliminary view on the business situation and the market conditions, which is starting to change. Looking ahead, Dreaming upon our infrastructure sector, we endeavor to iterate and refine our extensive industrial experience in reconstructing and streamlining the complex housing transaction. We will continue to grow in all fronts. Diversify our business offerings across housing-related products and services. We remain strongly committed to our mission of equitable service and joy for living. and reshaping the industry while capturing the tremendous opportunities along with all our vehicle platform participants. On factory note, as you may already aware, we have announced the date for the intention to offer and sell 35.4 million of our APS. More details about this offering can be found on our investment relations website. That concludes our prepared remarks. We would like now to open the call to questions. Operator, please go ahead.
spk02: Ladies and gentlemen, we'll now begin the question and answer session. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced. If you wish to cancel your request, please press the pound or hash key. And for the benefit of all participants on today's call, please limit yourself to one question. And if you have additional questions, please press star 1 again to re-enter the queue. Also, if your question is in Chinese, please follow it up with an English translation. Thank you. Again, ladies and gentlemen, you may press star 1 for questions. The first question we have is from the line of LP Chang from Goldman Sachs. Your line is now open.
spk05: Good morning, Mr. Tao. Thank you for accepting my question. Congratulations on the performance of the company this quarter. I have two questions. The first is about the improvement of the GTV electricity efficiency in our store. I saw that there was a share in our F1 that the electricity efficiency of the chain has increased by about 13.4 points this year. It is estimated that there is a growth of more than 45% in the number of non-contractors. So I would like to know if you can share more about this. What is the main driving force of the increase in the number of contractors and third-party stores? The second question is about the development of our new business. Just now, Mr. Tao and Mr. Matthew shared that our current business may be the main driving force of our new business. I would like to ask if the main products have been launched since July. Thank you. Thank you, management, for taking my questions, and congratulations again on the strong results. I have two quick questions here. One is on the GTV per store improvement. Our FOM has been disclosing about 13.4% of GTV per store at the end, and just wondering, you know, what's that number for the connected stores, and what are the major drivers? for the GTV Plus store improvement at both the India and the Connect store side? And the second question is about our new businesses development. Well, we have been talking about the financial business being ramping up, being a major driver for the new business GTV. just understand a little bit more in terms of the products on the financial side. And as we're sort of looking at a high single digital penetration for the service right now, what are some of the long-term or target that you could be thinking about down the road? Thank you. Xiexie.
spk00: OK. Thank you, Ailsi. And for our Kinect store and Ninja store, their efficiency improved year over year. Let me talk about our Kinect store store efficiency For the store, when they joined the Maker platform as a cohort base, the first year of 12 months, their store efficiency increased around 98%. And on the second year, from fourth to the eighth quarter, their efficiency increased around 26%. And for our Lianjia, because Lianjia is relatively mature, and their annual store efficiency increased around 15%. This is after your first question. Regarding your second question for our emerging others, let me talk about the financial business and the decoration separately. For financial business, in the short and the middle term, we maintain the in-home business and help facilitate the completion of the in-home transactions. The penetration rate of financial service in Q3 has improved significantly. The penetration rate increased from Q2 6.1% to 8.6% in Q3. The increase in the penetration rate was largely due to the platform's improved customer experience. including the introduction of diversifying flexible product design and the combinations that are more closely aligned to the customer needs, and working with a wide range of financial institutions to provide the online system, which is the most user-friendly. For the declaration of the renovation, so far, we focused on deepening the penetration in Beijing and have entered into the top tier of the market. At this moment, there are more than thousand projects in the construction of the process. So we are doing the decoration in Beijing because we want to build the standardization of the workers of the service under the standard of the procedure. And also we use Beijing to build up the industrial know-how for big decoration departments. At this moment, we do not have any sales pressure because all of the traffic is on our hands. What we are focused on is focused on the cost of the delivery and to continuously improve the NPIs. Thank you.
spk02: Thank you very much. Thank you. Once again, ladies and gentlemen, you may press star 1 for questions. And please limit yourself to one question. And if you have any additional, please press star 1 again to re-enter the queue. Also, if your question is in Chinese, please follow it up with an English translation. The next one we have is from Bin Bin Ding from JP Morgan. Your line is now open.
spk07: Good morning, management. Thanks for taking my question, and congratulations on a very strong quarter. My first question is on the commission rate. So can you give us some color regarding the commission rate for both existing home and new home segments in the next few quarters? commission rate has declined sequentially slightly. So what is the reason behind that and whether this will continue in the next quarter? And my second question is on your operating efficiency. It seems your operating expenses excluding the share-based compensation have decreased sequentially. uh in the third quarter so i assume this is uh mostly coming from the gm expenses um that's normally uh uh this feature goes into the gna line uh mostly so can management comment uh whether this is going to consider in the next few quarters Good morning, Mr. Guan. My first question is about the commission rate. What is the trend of the commission rate of our new and old houses in the future? And I noticed that the commission rate of the new house in the third quarter has a slight decline. What is the reason behind this? And what kind of impact will this have on the commission rate of the fourth quarter? The second question is about operating efficiency. We noticed that after the third quarter's operating cost was deducted from the SPCA, it was actually a downward trend. How do we look at the operating cost trend in the future? Thank you.
spk00: Okay, thank you. Let me talk about our commission rate. For our e-sink home commission rate, actually, this is very stable and have more than increased because the philosophy behind the commission rate for the e-sink home sales is the service guarantee. For example, in Beijing, our take-away for the e-sink home sales is higher because in Beijing, there is more than 20 service guarantee. And since the big launch, the The weekly average tick rate for the new home by itself is around 2.2 to 2.3. And for the new home, since big a lot in 2018, our scalability increased a lot, together with a very stable and very healthy tick rate. In 2018, our GDP is 281 billion, and our tick rate is 2.66. And the last year, the stability rate increased 2.8 times, increased to $746 billion. And our commission rate for new homes increased to 2.71. And in this year, by the end of September, the year to date, our PTP for new home sales already $914 billion. And our tick rate further increased to 2.74. So because in kind of some systematic so normally the commission rate that have some uh federal patients but we are written 4c in this year our ticket for new homes still will be stable and a little bit higher than 2019. And also, on to your second question, for the share-based compensation. So in this quarter, we focused share-based compensation, 1.67 billion, of which for the cost of goods sold is around 435 million, because we grant the options to our regional, like the city manager and the province manager and regional head. And also for the self-marketing, the sharpest competition is 47 million. And 14 and 8, the number is big. It's 901 million. And for R&D, it's 284 million. Hope this clarifies. Thank you.
spk07: That's very helpful. Thank you.
spk02: Thank you. The next question we have is from the line. This is Steven Tai from Morgan Stanley. Your line is now open.
spk09: Hi, Mr. Manager. Thank you for accepting my question. And congratulations on this very strong result. My first question is about the recent monopoly on some of the relevant regulations for the Internet platform. Can you please share with us if the company will think that this regulation will affect the future of this competitive attitude? or our future growth space. My second question is about the 2021 outlook. This year, due to the epidemic, developers or third-party financial institutions have increased their cooperation with Becker. In terms of demand, the demand is relatively strong because the government is relatively flexible. These two factors may not continue next year. I would like to know if there will be a significant change in terms of growth next year. My first question is related to the recent antitrust regulation on the internet platforms in China. Could you share with your view regarding whether the regulation will affect the competitive landscape for Baker and whether or not this will affect our future growth potential and our ability to raise commission rates and take rates over the longer term? And my second question is regarding the next year outlook. Because this year, the pandemic made both developers and real estate brokers increase collaboration with Baker. And on the demand side, variable credit environment triggers strong home purchase demand. But these two factors may not continue next year. So just wondering, should we expect a meaningful growth slowdown on both existing home and new home sites into 2021? Any comment would be great. Thank you.
spk00: Okay, thank you. Let me address the anti-monarchy law impact. So far, the draft guidance is not a new regulation. It's in line with the existing antitrust rules. We believe this release is to serve as a more detailed interpretation of existing rules and provide guidance on their future implementation. At this moment, we believe The draft guidance is focused on micro-internet companies, which has a very high market share, but for Baycorp, which has launched for two and a half years. So our total market is $32 to $35 trillion, and our market share in 2018 is only 5.3%. And last year, our top-end doubled, our market share only 9.1%. And in this year, we've risen 4C, our G2O before there goes with a big portion, but our market share is still around 12% to 30%. So still a lot of room for growth. So we are not very sensible on this. Baker has closely watched and monitored anti-monarchic rules, as well as the regulators and we have complied with all of the antitrust requirements historically. Baker provides transparency and improvement in service quality in our market through the data and the technology which benefits our customers, benefits platform participants instead of hurting them. Just to answer your first question. And regarding this outlook in are to talk to one it well you on the right you know my your sparky that they could be spurring to talk about you next year but to clear sign on the national party the hoping for leaving operation the whole national party so well we are in front of a very hot are up on this market and in this market the the the brokerage value are rising. So we are very confident we could play an important role to conduct service provider and customers and bring more value to industry and provide comprehensive service to 300 million families in China. Thank you.
spk09: It's very helpful. Thank you.
spk02: Thank you. The next question you have is from the line of Li Pingchao from CICC, you may now proceed with your question.
spk03: Thank you for answering my question. I have two questions here. The first question is about the new real estate policy. There is a three-way line between developers. What kind of impact does this have on the growth of our new house? Then the second question is about competition. We saw that Tianmao and Yiji did a collaboration together. In addition, I Love My Home is also an open platform. Do you know that this competitive furniture will increase the growth of GTV in the future and the pressure of the growth of commercial rates? uh so thank you management for taking my questions i have two questions here uh so first could the management elaborate the impact of the new policy for developers on our new home sales uh in our coming quarters and second question is will we see conditions uh take great pressure due to the heated up competition uh from other competitors like timor like ui etc
spk00: Okay, thank you. Let me answer your first question regarding the three-way line. We believe the three-way line will further constrain the growing capability of developers and also affect the property style to some extent. Developers are now under the increasing pressure to restocking and increase tax collection. This is a fueling demand for the China services to sell the new home. Teco, as a leader in the new home distribution market, They can leverage the economy of skill and the service capability to see small market share and help service developers to unload their inventory and call back cash in a more efficient manner. This regulation for the three red lines without a specific effective date for this policy, we expect the transaction period will provide a buffer for developers to make the necessary adjustments. But no matter before or after or during the entry, Baker will always be the partner of choice for the road developers and help them to quickly reach out to clients, deduct inventory, and call back cash. The second question, I will invite our CEO, Stanley, to give the interpretation. Thank you, Stanley. Stanley, are you on mute?
spk06: Can you hear me? Let me translate the question using the translator. First, we can see that this industry has not been in such a fierce competition. This industry is also a good place for us, but it is also a phenomenon in this industry today. Therefore, it is a good thing for more players to enter this industry to promote the progress of the entire industry. Of course, there is a competition in this. The final core is still a competition in two aspects. The first is on the side of consumers. How to provide better services to consumers, including in the new and second-hand areas. The second is how to provide better services to the service provider, including managers, stores, e-commerce, and brands. How to provide better services? The competition is based on these two dimensions. Masha, please translate it.
spk01: So I'll do the translation. So what we have seen in the past is that the competition in this area is not that competitive. This is what happens right now, but this is mainly due to the special characteristics of the real estate housing transaction service industry. But we have seen new entrants into this industry, and we think it is a good thing. But we still think the competition is focused on many two areas. Firstly, the first one, we still focus on the quality service that we can provide to the customers. And secondly, most importantly, we think what we can provide for the service providers is very important. So those are the key points we'll continue to focus on, are the key points for the competition-wise.
spk06: Yes, so we believe that in the future, there are four core core capabilities in this industry. The first point is the customer. The strong connection between the customer and the buyer. This is the first point of competition. The second point is the ability to integrate. The ability to integrate between the user and the consumer. The third point is the strong channel mobilization ability. How to mobilize these channels to form the corresponding channels. The fourth point is the ability to control the entire network. These four points are the core points that Xinhua can do well. We also saw in the new house that we have built a very large threshold through ASN. This ASN includes more than 400,000 managers and more than 400,000 stores. This threshold is very, very high. So we think there are very strong thresholds in terms of competition. At the same time, these customers also become a very powerful customer of XinFang. At the same time, in the process, we need to provide better services to consumers. For example, as I just mentioned, three days of no reason to retire. There are more than 3,000 offices in China to promote such services. These things are all some of the core competitors in Shenzhen, including the ability to integrate, the ability to mobilize, including the ability to control the entire platform. So in terms of this ability, we ourselves think it is still We are very confident. So, from the perspective of the competition, we think that the market is very large and there are many possibilities. At the same time, this kind of competition will open up consumers and service providers in two directions. Our current status is that we have a very high threshold, so we will not particularly care about these players who come in from outside the competition. Anyway, the more important thing is that we do our best.
spk01: Okay, so we think the entry barriers focus on quite a few points. Firstly, still the connection between the buyers and the sellers of house transactions. And secondly, the matching between the customers and the home sellers. And thirdly, to mobilize all the channel sales. So how we mobilize everyone on the platform to do the right thing and to sell all the homes and find customers. And fourthly, the management and the control of the platform, so how we can manage everyone on the platform to do the right thing. And lastly, as we talked about before in the IPO period, some of the new home customers come from the community-centric customers from existing home customers. So these two industries are actually connected. We can't look at them separately. as we have already more than 44,000 stores and over 470,000 agents in our community-centric stores, we are able to find more customers for the new home transactions. And also, as we mentioned in the As Stanley mentioned before, we offer the three-day refund policy for new home sales, and this is how we can bring quality service to the housing customers. We think these are the main barriers, and we are confident that we can work well in this industry, and it is still a very large industry.
spk06: Yes, so we want to emphasize a few points. Now some players, I think everyone can pay attention to a few points. The first point is to have a very strong 1 plus 1 greater than 2 momentum. If the network does not work together, there will be no more platform efficiency. We have to build a high-efficiency network through ACN. This is the first thing. The second thing is that it is difficult to form a long-term link by some subsidies in this low-end industry. So this is the second thing. The third thing is that real estate transactions have a long history. So we are very concerned about the beginning and the end. Okay, so we believe
spk01: There are a few points that we want to mention. Firstly, the synergy of our platform. So we believe 1 plus 1 is over 2. Yeah, the synergy and the efficiency that the synergy brought. And secondly, because the housing transaction service industry is a very low frequency industry so we think that society to customers it will work in the short term but not in the long term and therapy because the transaction is very long so we focus on from you from the traffic from the funnel from the top line traffic to all the way down to contract signing and transaction closing. So we focus on the full service during the transaction, but not only on the traffic side. And so because this long transaction, low frequency leads to a very complicated transaction process in this industry, we believe we are still competent enough to do well and do the good thing for the customers.
spk00: All right, Tara, please go ahead and ask questions. Thank you.
spk02: We have the last question from Louis Chen from Memorial. Your line is now open.
spk08: Hi, thank you for taking my questions. The next problem is that we noticed that the contribution margin of new companies has decreased in the third quarter. Of course, this may be due to the fact that the channel has increased from the Canadian store. But I don't know if this is also related to whether the agency has improved the commission sharing during the three-week period. Next, what should we think about the contribution margin for the new house business? My second question is about the payment part. Now, in the first quarter, there should be about 4.6 billion cash in the financial statements. I would like to know about the logic behind the public payment this time. So regarding to my two questions, number one is can management share their expectation for the new home brokerage penetration in coming quarters? And what is the estimated penetration in third quarter? And a follow-up question is regarding to the contribution margin for the new home business. Notice there's a drop for contribution margin in the third quarter. So besides from the change of a channel mix, is it also because of an increase of commission sharing in the third quarter? And what is the outlook? My second question is regarding to the shares offering. You still have the $46 billion cash at hand. So I just wonder what is the rationale behind the offering? So why do this now? Thank you.
spk00: Okay, thank you. Let me talk about the penetration rate for the brokerage in the new home to China itself. Actually, first I want to give you a big picture instead of the quarter, because China is shifting from the new home business to the existing home business. So for the new home, just several years ago, it's very easy to sell, so the penetration rate is very low. So before 2015, it's almost zero, and in 2019, 14% from the 10% in China market. In 2018, the pension rate was around 26%, and with recent policy, the overall market pension rate will be increased to 43% in 2021. So this is a big step in the China new home market. So for our Q3, our new home contribution margin percentage, income per percentage, we have some decline. This is mainly due to structural change that the decrease in contribution margin because we have a majority of our new home revenue was contributed by our connected store and agent instead of the ingestor. So for the ingestor, our margin percentage is around 43%. And for our connected store, their margin percentage is around 18% to 21%. So this is a combination two. So our margin percentage decline, but the up to dollar amount of the contribution market for the new home, we have an increase of quarter of the altar. And we also be fast for the professional, we'll also be fast for the promotional merit in the third quarter to further enhance the thickness for our connected store and other sales channels. So this is for the long-term investment for the future. And let's see here. OK. And also, I want to share some of the purpose of this follow-on and use of the fees. Because we want to, you know, China housing transaction service industry remains under development. There are still long, long ways for Baker to grow. We plan to use this fundraising to invest in three areas. 40% in business development. and the strength of our infrastructure is our third offering and entering into a new growth area. The second 40% for potential strategic opportunities. Baker will give us strategic opportunities to strengthen our market leadership position and facilitate the development of our core business. The remaining 20%, it will be the general operating program and the working capital. Thank you.
spk02: Thank you. We have the next question from . Your line is now open.
spk04: Thank you, Mr. Guan. I have a simple question that follows up with Mr. Stanley's question about competition. We know that EG has announced that it will reduce the brand fee of Xinfang to three points next year. I don't know how we see this problem. If they use three points to hit the green house market next year, how much impact will it have on us? Will we be affected by this part? okay uh thank you uh first of all we would like to say uh after faker ipo the two things were very
spk00: Sure, it will definitely happen. The first thing is that there will be a strong competitor step into the housing market. The second thing is that there will be more capital invested in this area. We would like to say that all things are good to Bayco. We welcome new players. As a new business model and a new market player in this market, we will help Bayco and its marketing team to continue to improve our service quality. discover our potential weakness and consequently motivate our team members and achieve fast enrollment for our operations. We respect all of the competitors. I thought that their initiative will help agents to improve professional safety and facilitate the transaction to the customer with a high quality of services. So despite of we don't comment on other peers' performance directly. But for Baker, we would like to say we believe our strong online offline infrastructure has built up a strong moat for us, which is very hard to copy. So this model, the high subsidy, is now sustainable and only attracts speculation brokers who are now Baker's target group. And also, Baker, we're using past 19 years of built ATAs The ACN is a culture of transparency, collaboration, and shared success. Agents collaborate with each other, and the relationship is very high. It cannot be simply beaten by this model, so-called combination of online traffic and low price. And I would like to share the number for reference. For Bei Ge, our philosophy is Ji Yao Ye Yao Hai Yao. We are not only focused on the scalability increase, but we are also emphasizing service quality and efficiency. Moreover, we are always emphasizing the health indicator of our new home business, for example, the DSO. I'd like to share the numbers. In 2018, our GTV went back to launch. Our new home GTV, $281 billion. And our ticker is 2.66. And last year, our scalability increased 2.8 times, and our GDP increased to 746 billion. This year, the first nine months, our GDP already achieved 914 billion. And our take rate last year is 2.71. This year, last year, today, 2.74. But the PISO, when you put it out in 2018, it's 117 days. Last year, it increased to 96 days. And this year, In Q3, the further decrease to 87 days. So this is our philosophy for when doing the fitness for the new home. Thank you.
spk02: Thank you. Thank you. We are now approaching the end of the conference call. I will now turn the call over to our speaker host today, Mr. Matthew Zhao, for closing remarks.
spk00: Thank you all for your time. Thank you once again for all joining us today. If you have any further questions, please feel free to contact us. This concludes today's call, and we look forward to speaking with you again next quarter. Thank you, and goodbye.
spk02: Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you all for participating. You may now disconnect.
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